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A year ago RFID got rolling. Will the momentum continue?
Mike O'Shea was vacationing in Orlando when his cell phone rang around 7 p.m. A case of Kimberly-Clark Corp.'s Scott paper towels tagged with a radio-frequency identification label had just passed under a scanner in Wal-Mart Stores Inc.'s Sanger, Texas, distribution center. O'Shea and his wife toasted the moment with mango daiquiries. The celebration by Kimberly-Clark's director of RFID strategies and technology was about more than the first success in Wal-Mart's live RFID trial, now about 4 weeks old. It marked the end of a 12-month process that changed how businesses think about RFID.
It was at last year's Retail Systems conference in Chicago that Wal-Mart CIO Linda Dillman seized the industry's attention by announcing the goal of having the retailer's top 100 suppliers deliver cases and pallets with RFID tags by January 2005. Last week, Wal-Mart was back at the Retail Systems conference, promising to get 200 more suppliers into the RFID effort this summer and to keep the pressure on suppliers, tech companies, and even rivals to make RFID a reality. "This joint work has ensured that many months, and even years, have been taken out of the traditional development cycle for a project like RFID," Wal-Mart stores division CEO Mike Duke said.
Advantages from RFID "can be realized through the entire value chain," says Kimberly-Clark's O'Shea.
Photo by Chris Lake
Wal-Mart's initiative kick-started--and in some ways redirected--progress on a supply-chain technology that had been of interest to researchers at a handful of technology vendors, academic labs, and a few large businesses. Now executives are changing strategic to-do lists, big-name vendors such as Hewlett-Packard and SAP are pitching products and services, an organization was created solely to accelerate RFID standards, and tagged boxes are shipping in real-world trials.
Kimberly-Clark, whose brands include Kleenex, Huggies, and Depend, shifted its RFID focus in response to Wal-Mart. The paper-goods company last year was investigating the use of the technology, which uses small computer chips embedded in labels to more efficiently transmit the kind of information held on a bar code, in its warehouses. "When we started evaluating RFID and looking at applications, we felt there was value for us to pursue this within our four walls," O'Shea says. "Wal-Mart's announcement has accelerated the pace of how we're implementing RFID outside of our four walls."
The Department of Defense, Target, and Albertsons issued similar mandates following Wal-Mart's. Other industries, such as auto, health care, and pharmaceuticals, could shoot past retail and consumer goods. Last week, Exavera Technologies Inc. introduced a system combining wireless networking and RFID-based bracelets that could hold patient information. The pharmaceutical industry will move faster than others to adopt RFID, predicts James Hintlian, head of consulting firm Accenture's health and life-sciences supply-chain practice, because more-accurate tracking could help combat a huge counterfeit problem. As much as 7% of U.S. prescription drugs are counterfeit.
Despite such promise, RFID is still a leap of financial faith. "A number of manufacturers are saying to us, 'Are we the only ones who can't find a business case for this?'" says Jeff Woods, a principal analyst at research firm Gartner. Making the business case for RFID, such as identifying operations that could be more efficient with its use, is proving difficult, particularly in distribution centers that already leverage state-of-the-art bar-code systems and well-ordered processes. "People are asking what an RFID-centric picking process should look like and how it will save them money, but it's a really difficult thing because bar coding is so good," Woods says.
Avery Dennison Corp., an office-products manufacturer, is one of 37 suppliers--beyond the top 100--that volunteered to hit Wal-Mart's January RFID deadline, though it won't begin pilot tests until after the back-to-school rush. The company has been exploring RFID since 2000 and will spend more than $12 million this year on it. Still, the technology won't improve its supply-chain processes in the short term. "It's not something financially justified today, but that was true in the beginning with bar codes, too," says Stan Drobac, VP of RFID applications.
There's a standards struggle, too. Kimberly-Clark, Target, Wal-Mart, and many other well-known companies have been pressing for several years for standards on what data is included on an RFID chip and how readers and tags communicate, initially as members of the Auto-ID Center and now by participating in EPCglobal Inc., a joint venture between EAN International and the Uniform Code Council. A single RFID standard has yet to emerge, and a fragmented approach could sink the effort. "We're going to do this one way," Target CIO Paul Singer said at the retail conference. "I really believe that's critical for making this happen."
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